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Income Tax Appellate Tribunal, INDORE BENCH, INDORE
Before: SHRI KUL BHARAT & SHRI MANISH BORAD
आदेश / O R D E R PER KUL BHARAT, J.M: These two appeals by the assessee are against orders of the Commissioner of Income Tax (Appeals)-I, Indore dated 12.09.2014 against cancelation of Registration granted u/s 80G & 12AA respectively. First, we take up assessee’s appeal in ITA No.657/Ind/2014 The assessee has raised following grounds of appeal: “1. On the facts and in the circumstances of the case, the learned commissioner of Income tax - I, Indore, was not justified in cancelling the registration granted u/s 12A of the Income Tax Act, 1961 to the appellant trust.
Bhandari Group of Hospital & Institutions
On the facts and in the circumstances of the case, the learned commissioner of Income tax -I, Indore, was not justified in cancelling the registration of the trust u/s 12M (3) of the Income Tax Act, 1961 when a trustee of the appellant trust was suspected to be involved in some unlawful activity which was not connected with the performance of the activities of the trust. 3. On the facts and in the circumstances of the case, the learned commissioner of Income tax-I, Indore, was not justified in cancelling the registration u/s 12M (3) of the Income Tax Act, 1961 based on suspicion, reports not corrected with the activities of the trust and holding without any basis that the activities being run by such institution are farce only. 4. On the facts and in the circumstances of the case, the learned commissioner of Income tax- I, Indore, was not justified in not considering the various submissions made by the trust before the learned Commissioner of Income Tax-I, Indore by omitting to mention reasons as to why the point wise submissions were not found to be satisfactory . 5. On the facts and in the circumstances of the case, the learned commissioner of Income tax- I, Indore erred in reaching to a conclusion that no charitable activity could be carried out by the trust.
Brief facts giving rise to present appeal are that the assessee had applied for registration u/s 12A of the Income Tax Act, 1961 (hereinafter called as ‘the Act’) on 25.04.2013. Registration was granted to the trust vide order dated 21.10.2013. Subsequently this order of granting registration was withdrawn vide impugned order dated 12.09.2014. Against this order the assessee is in the present appeal. 3. Ld. counsel for the assessee vehemently argued and reiterated the submissions as made in the written submissions of the assessee are reproduced as under: a) Assessee is a Company incorporated u/s 25 of the Companies Act, 1956 on 23.02.2013 wherein it has been granted a license by
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the Central Government as per provisions of section 25(1) [text of section 25 enclosed with this synopsis – page 7] b) Section 25(8)(b) provides that Central Government may revoke the license of such a body if it contravenes the provisions of clause (a) of section 25(1). In the instant case, no such revocation has been done by the Central Government c) Ld. CIT noted in her impugned cancellation order – “Registration u/s 12A of the Income Tax Act, 1961 (the Act) was granted as there was no adverse report with regard to the activities of the trust” [emphasis supplied] d) Ld. CIT has noted the following for Dr. Vinod Bhandari, in her impugned cancellation order against which assessee Company’s submissions are also made – Para Per Ld. CIT order cancelling Assessee Company’s No. the registration granted u/s submission 12A 2 Transpired through various No such reports made reports of investigating agency available by the Ld. CIT to that Shri Vinod Bhandari was the assessee Company. found involved in various Without prejudice, such objectionable activities related reports relate to Shri Vinod to admission in medical Bhandari as in individual colleges, etc. and not the assessee Company He is alleged to be involved in activities relating to admission in medical colleges and NOT for charitable activities of the assessee Company 2 Many direct evidences were No such raid conducted on found by STF during raids the assessee Company conducted at their residences No such alleged direct and offices (‘their’ referring to evidences found of the many big personalities assessee Company including leading doctors of Indore) 2 It was proved by STF that No such proof made
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these students obtained available by the Ld. CIT admissions using unfair against the assessee means which include paying Company. heavy amounts in lacs to No positive material scamstors. brought on record by the Ld. CIT for such payments made to the assessee Company for obtaining admissions. 4 The reply of trust is placed on The assessee is a record, considered and not Company having separate found satisfactory. legal entity structure, duly incorporated under the Companies Act, 1956. It is not a trust or a society. No basis, justification or reasoning given by the Ld. CIT for her dissatisfaction on the submissions made by the assessee Company. Submissions made by the assessee company remained uncontroverted. The impugned cancellation order is not a speaking order justifying the fulfillment of conditions enumerated u/s 12AA(3) for the said cancellation. 5 Dr. Vinod Bhandari was found The assessee Company is to be playing leading role in not a party in any manner this scam. to this alleged scam. 5 Because of strong evidences The alleged evidences are found against him he was not not against the assessee granted bail by any court. Company but against ‘him’. 5 He has spoiled the lives of No such decision by any hundreds of bright and Competent Authority. deserving students. Without prejudice, it would in any case relate to Dr. 4
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Vinod Bhandari as an individual and not the assessee Company. 5 Such person cannot have the Registration u/s 12A has mindset which can think of been granted to the doing any type of charitable assessee Company and not work. Nor is it clear as to how, to the individual Dr. Vinod under the circumstances as Bhandari by following due discussed above, any process of law. charitable activity can go on. Ld. CIT got carried away by an apprehension based on her own suspicion, in absence of any decision / order by any Competent Authority, which in any case would not have any bearing on the assessee Company as it would relate to individual Dr. Vinod Bhandari. Assessee Company as a separate legal entity continues to pursue its charitable objectives. 6 It was reported in the press Bhandari Group of that money obtained through Hospitals referred by Ld. money laundering has been CIT relates to various invested in Bhandari Group of business concerns of the Hospitals. Bhandari Group and not the assessee Company in specific though the name bears a similarity. Ld. CIT has relied on press and media reports, without any basis. Her action of cancellation of registration is based purely on suspicion, surmises and conjectures which are baseless and devoid of any 5
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merits so far as the assessee Company is concerned. 6 In view of all the above facts I The alleged facts are mere am satisfied that…. allegations in absence of any decision by Competent Authority which in any case do not relate to assessee Company. 6 Any claim regarding No positive material has charitable activities being run been brought on record by by such institution are farce the Ld. CIT against the only. assessee Company which satisfies the twin conditions u/s 12AA(3) for cancelling the registration earlier granted. It is not a case that assessee Company obtained the registration u/s 12A fraudulently. 6 In this case all the evidences This statement by the Ld. gathered are against Dr. CIT in her order squarely Vinod Bhandari justifies the submissions of the assessee Company giving it a clean hand. Further, without prejudice, none of these alleged evidences of Dr. Vinod Bhandari on which Ld. CIT has placed strong reliance, have been made available to the assessee Company. 6 I have reasons to believe that No positive material assessee Company is doing brought on record by the no charitable activity and is Ld. CIT to establish that gathering money through assessee Company is not VYAPAM scam. doing charitable activity as she never enquired about
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the said activities for cancelling the registration. No positive material brought on record also to establish that the assessee Company is gathering money. Assessee Company cannot be made to prove the negative. No such alleged money flowed into the assessee Company.
e) Chapter XV and section 160 of the Act relating to ‘Representative Assessee’ is not applicable to the assessee Company owing to its separate legal entity structure and being an assessee in its own right and filing its own return.
f) Granting of registration procedure is different from assessment procedures. The power vested with the CIT at the time of granting the registration is twofold:
1) Whether the trust or institution has charitable or religious objects; and 2) Whether the activities carried out are genuine in nature. To satisfy these twin conditions, CIT may call for such information as may be required. At the time of grant of registration to a trust or institution, the power of the CIT is limited to examination whether trust's objects are charitable or not and trust’s activities are genuine or not. When CIT grants registration to trust or institution it means that he is satisfied about objects and genuineness of activities of trust or institution. Ld. CIT having satisfied for the above twofold conditions, granted the registration fact of which is categorically noted in Para 1 of her impugned order - “Registration u/s 12A of the Income Tax Act, 1961 (the Act) was granted as there was no adverse report with regard to the activities of the trust” [emphasis supplied] g) The power of cancellation or withdrawal of registration allowed to a trust or institution can be invoked by the grantor of registration,
Bhandari Group of Hospital & Institutions
viz., CIT only, on the limited grounds mentioned in section 12AA(3) of the Act and not on any other grounds. According to section 12AA(3), if the CIT is satisfied that the activities of any trust or institution are not genuine or are not being carried out in accordance with the objects of the trust or institution, may cancel the registration. In no other situation, the registration granted can be cancelled / withdrawn by the CIT. Thus, the finding of CIT cancelling registration has not only to be conceptual or contextual but should be within the four corners of law so that they are not surpassing the power granted u/s 12AA(3). Ld. CIT has cancelled the registration granted by applying section 12AA(3). [copy of full text of section 12AA enclosed with this synopsis – page 8] The onus of the factors for canceling the registration granted to a trust or institution is on the department and not on the institution as held in Para 30 in case of Guru Gobind Singh Educational Society v. CIT (2009) 118 ITD 207 (Amritsar). It was further held in this case in Para 29 that – “for any irregularity or illegality committed by its members, a Society, which is a juridical entity having independent existence, cannot be held liable. Further, when there is no finding recorded that the income of the Society has flowed to its members, irregularities committed by members in their individual capacity cannot be held against the Society for the purpose of cancellation of registration.” In the instant case, Ld. CIT has neither established by bringing any cogent and positive material on record that activities of the institution are not genuine nor that they are not being carried out in accordance with the objects of the institution. She has merely relied on allegations against an individual – Dr. Vinod Bhandari, media and press reports, her own apprehensions and suspicions to cancel the registration earlier granted after complying the procedure laid down u/s 12AA of the Act. Reliance is placed on the decision of Hon’ble Allahabad High Court in the case of Red Rose School [2007] 163 Taxman 19 - Para 33 Strong reliance is placed for the above submission on the decision of Hon’ble Madras High Court in the case of Tamil Nadu Cricket Association [2014] 221 Taxman 275 – Para 48 & 51 In the instant appeal by the assessee Company, it has not been denied that at the time of granting registration, the Ld. CIT had satisfied herself about the objects of the trust and the genuineness of
Bhandari Group of Hospital & Institutions
the activities, as it stood when the registration was granted on 21.10.2013. The Ld. CIT did not deny as a matter of fact that the objects remained as they were when registration was granted in the year 2013 and there was no change in content to call the assessee Company's objects as not genuine. There was no material to indicate that the grant of registration was not based on materials indicating charitable purpose.
The Ld. CIT rested her decision on considerations which were not relevant for considering the test specified under section 12AA(3) to impose criminal / non-charitable character to the activities of the assessee Company. In the circumstances, the Ld. CIT was wrong in cancelling registration of the assessee.
h) Other relevant decision squarely covering the case of the assessee Company on which reliance is placed – 1) Chaturvedi HarPrasad Educational Society [2011] 45 SOT 108 (Luck) – Head note 2) H.P. Government Energy Development Agency [2010] 134 TTJ 33 (Chd) – Para 8 3) Sarvodaya Ilakkiya Pannai [2012] 343 ITR 300 (Mad) – Para 5 & 6 4) Bharat Jyoti [2012] 23 taxmann.com 366 (Luck) – Para 8.2 j) Following are the circumstances in which an institution can avoid breach of trust under the Act- i. Carrying on objects discretely for charitable or religious purposes ii. Complying with the terms as enumerated in the deed of trust iii. Maintaining proper books of accounts iv. Investing of income in a manner that is in accordance with the law v. No diversion of income or the assets of the trust vi. Applying income only for charitable or religious purposes in terms of the deed of trust. vii. Complying with all other provisions as required under the income tax or any other law.
The assessee Company has complied with all the above listed requirements and has not breached the trust entrusted by the Act
Bhandari Group of Hospital & Institutions
and the Central Government while granting registration u/s 12A and 80G of the Act.
Thus, the factual and legal position as emerges from the foregoing submissions as well as those before the Ld. CIT, is that once the registration is granted to a trust or institution it can be cancelled only on breach of either of the two conditions mentioned in section 12AA(3). Order of Ld. CIT u/s 12AA(3) does not give any finding about such a breach. Accordingly, the registration to the assessee Company ought to be restored u/s 12A.
Registration u/s 80G has been cancelled as a consequential effect of cancellation u/s 12AA(3). All the submissions made above may also be considered for restoring the registration u/s 80G which will be consequential to restoration of registration u/s 12A.
Ld. Departmental Representative (DR) opposed the submissions and supported the order of Ld. CIT. 5. We have heard the rival contentions, perused the material available on record. Ld. CIT while cancelling the registration has observed as under: 2. However, as it transpired through various reports of investigating agency, Shri Vinod Bhandari, Founder of the trust, was found involved in various objectionable activities related to admissions in medical colleges, etc. Recently very big scandal has been detected by STF regarding admissions in medical colleges, dental colleges and professional colleges of M.P. in Madhya Pradesh Vyavsayik Pariksha Mandal, Bhopal. Modus operandi was to provide scores to students who are willing to pay big amounts for admissions in medical and dental colleges. In this scam many big personalities including leading doctors of Indore were found involved who are in Central Jail and no court has granted bail to anybody till today because many direct evidences were found by STF during raids conducted at their residences and offices. One person namely Brajbhooshan Raghuvanshi has also confessed his involvement in this scam and it is also mentioned here that this person is a senior executive in this institution. About 400 admissions in medical colleges have been cancelled including in post-graduation courses also because it was proved b STF that these students obtained 10
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admissions using unfair means which include paying heavy amounts in lacs to the •• scamstors . Most of such students are still in jail. 3. Under such circumstances in the light of power vested in Commissioner of Income tax-I, Indore for cancelling the registration u/s 12AA(3) of the I.T.Act, 1961, this office suo-moto issued a show cause notice on 01.07.2014 to explain the reason, why the registration '9 of the trust u/s 12AA (3) of the I.T.Act, 1961 should not be cancelled. 4. The notice was served on 01.07.2014. In response to the notice reply was submitted on 21.07.2014 and matter was posted for hearing on 08.07.2014, 14.07.2014 & 21.07.2014 by the trust. The reply of trust is placed on record, considered and not found satisfactory. 5. The other notorious facts of the case are that Dr. Vinod Bhandari, principal officer, who heads the Bhandari Group of Hospitals and Institutions was found to be playing leading role in this scam who was also arrested and put in central jail. Most of the admissions in these medical colleges were found to be made through this scam only. He tied to get bail from all the courts but because of strong evidences found against him he was not granted bail by any court. Because of this Scam many bright and deserving students could not get admissions as undeserving students whose parents were having black money were given their seats because of greed for money of persons involved in this scam. These scamstors including Dr. Vinod Bhandari have played havoc in the life of many bright and deserving students. This is being discussed here to show that the person who is running leading medical institutions and who was considered a well-respected personality of the city was found to be having enormous greed for money and to fulfill his greed he has spoiled the lives of hundreds of bright and deserving students. Such person cannot have the mindset which can think of doing any type of charitable work. Nor is it clear as to how, under the circumstances as discussed above, any charitable activity can go on. 6. Recently Enforcement Directorate also interrogated Dr. Vinod Bhandari and again Sh. Bhandari could not explain the huge amount of money invested in Bhandari Group of Hospitals running into about 40 crores. It was reported in the press that money obtained through money laundering has been invested in Bhandari Group of Hospitals. In view of all the above facts I am satisfied that institutions which 11
Bhandari Group of Hospital & Institutions
are headed by the persons like Dr. Vinod Bhandari are created and run for minting money only using unfair means. Any claim regarding charitable activities being run by such institution are force only. In this case all the evidences gathered are against Dr. Vinod Bhandari and even Hon'ble M.P. High Court is also satisfied on the basis of facts gathered by the STF investigating the scam. Therefore, I have reasons to believe that Bhandari Group of Hospitals and Institutions, 181, Clerk Colony, Indore (M.P.) is doing no charitable activity and is generating money through VYAPAM Scam I discussed above and therefore, the registration granted to it the provisions of section 12AA(3) is hereby, cancelled.
During the course of hearing the assessee was asked to submit Memorandum and Articles of Association (MoA) and the clauses distribution of property upon winding up or dissolution. The assessee has made following submissions: 1. Direction was given in the last hearing held on 14.11.2018 to furnish copy of ' Memorandum and Articles of Association (MoA) of the appellant company to peruse its object clause. The same are enclosed with this submission for ready reference. It is also humbly submitted to refer to clause V(2) which prohibits distribution of profits directly or indirectly by the appellant company. Clause VI which restricts alteration to the MoA subject to certain approvals. Clause X which prohibits distribution of property upon winding up or dissolution. [Page 4 of MoA]. 2. Your Honours also enquired if a certificate can be given by the management of the appellant company for the vocational skills development and training programs conducted by the appellant for its students during the relevant time confirming that such programs did not relate to issues covered in alleged 'Vyapam scam'. A management certificate to this effect is accordingly annexed with this submission. Details of program conducted, students attended and affiliated body with results of the students are already on record in Paper Book Volume - 2 from Page 36 to 64.
From the aforesaid observation of the Ld. CIT, it is evident from the observation of Ld. CIT(A) that the basis of cancellation of 12
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registration has not on the basis that the assessee has violated provisions of Income Tax Act however purely on the basis that Dr. Vinod Bhandari was involved in some scam related to admission of students which was being investigated by the investigation agencies. In our view the Ld. CIT ought to have based her finding on material related to the appellant assessee. There is no whisper of any material related to the appellant assessee. Under these facts we set aside the impugned order and direct the ld. CIT to reconsider the issue of rejection of registration u/s 12AA of the Act. Thus, grounds raised in this appeal are allowed for statistical purposes. Now we take assessee appeal in ITANo.656/Ind/2014 The assessee has raised following grounds of appeal:
On the facts and in the circumstances of the case, the learned commissioner of Income tax - I, Indore, was not justified in cancelling the registration granted u/s 80G of the Income Tax Act, 1961 to the appellant trust. 2. On the facts and in the circumstances of the case, the learned commissioner of Income tax - I, Indore, was not justified in cancelling the registration of the trust u/s 80G of the Income Tax Act, 1961 when a trustee of the appellant trust was suspected to be involved in some unlawful activity which was not connected with the performance of the activities of the trust. 3. On the facts and in the circumstances of the case, the learned commissioner of Income tax - I, Indore, was not justified in cancelling the registration u/s 80G of the Income Tax Act, 1961 based on suspicion, reports not corrected with the activities of the trust and holding without any basis that the activities being run by such institution are farce only. 4. On the facts and in the circumstances of the case, the learned commissioner of Income tax - I, Indore, was not justified in not considering the various submissions made by the trust before the learned Commissioner of Income Tax - I, Indore by omitting to mention reasons as to why the point wise submissions were not found to be satisfactory. 5. On the facts and in the circumstances of the case, the learned commissioner of Income tax - I, Indore erred in reaching to a 13
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conclusion that no charitable activity could be carried out by the trust.
At the outset, Ld. counsel for the assessee pointed out that the registration granted u/s 80G of the Act was rejected in consequence of the registration u/s 12AA of the Act. 9. Ld. Department Representative (DR) conceded this fact. 10. We have heard both representatives of the parties in appeal, we find that the ld. CIT had cancelled registration u/s 80G of the Act while observing as under: “Bhandari Group of Hospitals & Institutions 181, Clerk Colony, Indore had applied for registration/approval u/s 80G of the IT Act, 1961 on 25.04.2013. Registration/approval u/s 80G was granted to the trust as there was no adverse report with regard to the activities of the trust reference order F.No. CIT-I/Ind/Tech/80G/2/2013-14 dt.23.10.2013. In consequence to the cancellation of registration u/s 12AA(3) of the I.T. Act, 1961 vide this office order F.No.CIT/Ind/Tech/12A/2014- 15, Indore dated 12.09.2014, registration/approval u/s 80G of the I.T. Act 1961 is hereby cancelled due to detailed reasons mentioned in the cancellation order of 12AA(3) dated 12.09.2014.”
As in ITANo.657/Ind/2014 we have restored the issue of cancellation for registration u/s 12AA of the Act for reconsideration by the ld. CIT, therefore, the impugned order in this appeal is also set aside and the issue of cancellation for registration u/s 80G of the Act would also be reconsidered by the Ld. CIT. Grounds raised in this appeal are allowed for statistical purposes.
Bhandari Group of Hospital & Institutions
In the result, both the appeal of assessee in ITANo.656/Ind/2014 & ITANo.657/Ind/2014 are partly allowed for statistical purposes.
Order was pronounced in the open court on 03 .01.2019.
Sd/- Sd/- (MANISH BORAD) (KUL BHARAT) ACCOUNTANT MEMBER JUDICIAL MEMBER Indore; �दनांक Dated : 03/01/2019 ctàxÄ? P.S/.�न.स.
Copy to: Assessee/AO/Pr. CIT/ CIT (A)/ITAT (DR)/Guard file. By order Assistant Registrar, Indore